In an unprecedented show of effrontery to General Motors, Japan’s Yorozu Automotive, the sole supplier of suspensions for several GM vehicles, threatened last month to halt shipments if the carmaker did not pay out $US3.7m in disputed payments.
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Yorozu’s stamped pieces are critical for the production of several models, including the Chevrolet Malibu and Pontiac G6.
Yorozu says it is willing to give up the GM business. It contends that “threats and coercions are common practices with GM as it attempts to hold hostage its suppliers”.
The move is highly significant as it could serve as a model of rebellion for other disgruntled GM suppliers. GM has scored the lowest on most supplier satisfaction surveys over the past three years but the importance of doing business with the No. 1 US company is usually enough to rein in the willfulness of suppliers – short of their declaring Chapter 11.
“Yorozu is showing a lot of courage, something not all of us can afford to do,” said the executive at one Detroit-area metal-bender supplier last week. “Yorozu knows that its real future is not in Detroit and is not with GM.”
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By GlobalDataYorozu’s actions come at the same time that Delphi is seeking to cancel almost 5,500 money-losing parts contracts with General Motors – and renegotiate them at higher prices.
Yorozu, which asserts that GM tried to force $625,000 in price reductions, claims it is losing money on some GM business and has asked the courts to void its contracts with the automaker.
If Yorozu is to maintain shipments of stampings to GM it insists that the automaker must post a $75m letter of credit as an assurance of performance -amounting to three times its average monthly GM billings.
In a letter to GM’s North American purchasing operations, Yorozu America president Kazumi Sato wrote: “Yorozu has no alternative but to cease doing business with GM.”
He cited “GM’s unilateral actions to reduce retroactively the price of components produced and to be produced for GM, which amounts to breach of contract.”
The letter was sent last autumn after GM informed Yorozu that it was re-doing the supplier’s contract to reduce the component prices.
In another letter last month addressed to a GM purchasing executive, Yorozu maintained that that if GM does not provide the assurance, it will have “no alternative but to cease immediately production and shipment of all products to GM.”
The supplier added: “While we wish to work with GM and help it overcome its current financial difficulties, Yorozu must protect itself from the probability of further default by GM.”
A Tennessee court is due to hear Yorozu’s claims later this year. In the meantime, Yorozu says it will keep shipping components “to mitigate any potential damages GM may sustain with the immediate cessation of shipments”.
Meanwhile, GM says the threat to stop shipments would disrupt its business and in a countersuit has accused the supplier of charging too much for its stampings.
Yorozu is no giant in the US. Its sales in North America in 2006 are expected to total around $450m. Yet it has become one of the largest stampers of steel chassis parts in the country. Only Chapter 11-ridden Tower Automotive is larger in the segment.
Yorozu once aimed to set up close relations with GM. In 2000, it moved its North American executive offices to the Detroit area. But last year, the company shifted its offices back to Tennessee.
SupplierBusiness.com
